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What's it feel like to survive one hurricane only to be told that another is
on the way? New York Cityarea homeowners are in just that spot. After the region suffered
the brunt of financial-industry cutbacks, the next big wave of woe could be
a nor'easter of collapsing home prices. That's the forecast of an extensive
new report on residential real estate by Deutsche Bank, which calls for home
prices in metropolitan New York City (which includes Westchester, northern
New Jersey and other nearby areas) to fall 40.6% from the prices that
prevailed in March.

Ironically, that dire forecast is wrapped in an improving forecast for
nationwide home prices. Back in March, Deutsche Bank analysts had expected
national home prices to decline 16.5%; now they foresee just a 14%
decline. That mildly upbeat news does not hold true for the New York City area,
however, which is expected to see a 40.6% drop. While that is also a slight
improvement from the March forecast, it is dire nonetheless. (See photos of the global financial crisis.)

To arrive at their forecasts, the Deutsche Bank analysts, led by Karen
Weaver, assessed several leading variables, with affordability being a key
driver. The pronounced decline in home prices across the nation, coupled with
a downward drift in interest rates, has greatly improved nationwide
affordability, the report noted. Indeed, in some famously overpriced regions
that have since corrected, such as Los Angeles and the RiversideSan
Bernardino areas of California, affordability is as good now as it has been
in decades. That's a big reason that many California areas may see
prices fall only an additional 10% or so, despite the state's deepening financial
crisis. (See "Four Steps to Ending the Foreclosure Crisis.")

New York City's big problem is not so much the financial-industry meltdown as it
is an intense lack of affordability. As the report notes, metropolitan-area
New York home prices peaked in the second quarter of 2007 at $552,000. By
the first quarter of 2009, the median price had dropped 19%, to $446,000, but
the market swoon was less than half the drop recorded in many other areas of the
country. Today among the 10 biggest metropolitan areas, New York ranks as
the least affordable.